A borrower can now only take on uncollateralised business loan of up to $5,000 but the rule will be relaxed, allowing him to get loans of up to 0.5 per cent of the company's capital funds.

Singapura Finance chief executive Jamie Teo said the moves will allow finance companies to offer loans that were previously outlawed.

He said: "Project financing is uncollateralised. So if an SME wins a contract but does not have enough funds, it can now come to us."

Finance companies will also be allowed to offer current accounts and chequing services to businesses and join electronic payment networks.

In another major step, the MAS will lift its prohibition on a foreign takeover of a finance company - with conditions.

It will consider an application for a merger or acquisition if SME financing will continue as a core business.

A chief executive of a start-up said having greater access to uncollateralised capital is a welcome alternative to the "traditional route" young companies usually have to take to obtain capital, which is to sell equity.